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May 18, 2012

Why Telcos Will Go 'Over the Top'

By Gary Kim, Contributing Editor
As much as service providers fear competition from over the top alternatives, such as voice and messaging competitors ,Skype (News - Alert) and WhatsApp, in the end, they will find themselves in the over the top business, one way or the other.

For starters, in most countries it simply will not be possible to stop people from using over the top apps, though there might be a few countries where such apps are illegal.

 Second, over the top is the intentional and standard way of creating all modern software: the “seven layer” Open Systems (News - Alert) Interconnect model, for example. In principle, apps are supposed to work independently of the physical, data link, transport and network layers, for example.

 Third, over a period of time, service providers gradually will figure out how to adapt over the top apps and services to their existing business models.

In most cases, that probably will entail a shift of focus from “selling services to current customers, where we have network” to “selling services to non-customers who are out of territory.”

Already, telcos and cable companies have grown by buying assets “out of territory.” Incumbent local exchange carriers have created competitive local exchange carrier operations to sell services “out of region.”

Telefonica, T-Mobile, Deutsche Telekom (News - Alert) and others have invested in their own over the top apps.

And if you think about it, the Verizon and Coinstar joint venture to create a streaming version of Redbox is part of a pattern at Verizon and elsewhere, namely that over the top services increasingly are being viewed as a way to sell services to “non-customers.”

In essence, the new streaming service will reach beyond the footprint of Verizon fixed network customers and appeal to all 30 million Redbox customers who have been renting DVDs from the Redbox kiosks.

According to Verizon Communications CFO, Fran Shammo, Verizon was looking to create a streaming service that would extend “outside of just the FiOS (News - Alert) footprint, utilizing the content that FiOS has and bringing that into the rest of the United States.”

Some think something similar will happen as Verizon’s agency agreements with Comcast, Cox (News - Alert) Communications, Time Warner Cable and Bright House Networks develop, as well. Those efforts so far have had each of the partners co-selling cable TV, fixed network broadband access and fixed network voice, plus wireless service, outside the Verizon fixed network footprint.

In essence, Verizon is using the agency agreements to sell services to “non customers” outside the Verizon fixed network footprint.


Edited by Brooke Neuman
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